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The evolution of infrastructure and utility ownership and its implications

Author

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  • Dieter Helm
  • Tom Tindall
Abstract
The paper documents the significant changes of ownership since the infrastructure utilities were privatized and, in particular, the shifts from the initial focus on dispersed retail share ownership through takeovers to more concentrated ownership and the emergence of private equity and infrastructure funds. In the process, there has been substantial financial engineering and balance sheets have been geared up towards exhaustion, with major implications for financing future investment. Increased gearing has, on the one hand, introduced the discipline of debt upon management which had engaged in substantive diversification, and on the other provided an arbitrage between the weighted average cost of capital used to calculate the allowed return, and the lower marginal cost of debt. The paper shows how regulation has determined the allocation of risk, and facilitated the observed changes in ownership and financial structures. Three solutions to the exhausted balance sheets are considered to finance future investment: rate-of-return regulation; the split cost of capital; and a collapse back into not-for-dividend, mutual or state ownership. The default outcome already witnessed in the Welsh Water and Network Rail cases is the latter case, which is inferior to the second option. Copyright 2009, Oxford University Press.

Suggested Citation

  • Dieter Helm & Tom Tindall, 2009. "The evolution of infrastructure and utility ownership and its implications," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 25(3), pages 411-434, Autumn.
    • Handle: RePEc:oup:oxford:v:25:y:2009:i:3:p:411-434
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    File URL: http://hdl.handle.net/10.1093/oxrep/grp025
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    Citations

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    Cited by:

    1. Palcic, Dónal & Reeves, Eoin, 2013. "Private equity leveraged buyouts in European telecoms: The case of Eircom," Telecommunications Policy, Elsevier, vol. 37(6), pages 573-582.
    2. Atif Ansar & Bent Flyvbjerg, 2022. "How to solve big problems: bespoke versus platform strategies," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 38(2), pages 338-368.
    3. Inderst, Georg, 2017. "UK Infrastructure Investment and Finance from a European and Global Perspective," MPRA Paper 79621, University Library of Munich, Germany.
    4. Curtis, John & Devitt, Niamh & di Cosmo, Valeria & Farrell, Niall & FitzGerald, John & Hyland, Marie & Lynch, Muireann & Lyons, Sean & McCoy, Daire & Malaguzzi Valeri, Laura & Walsh, Darragh, 2014. "Irish Energy Policy: An Analysis of Current Issues," Research Series, Economic and Social Research Institute (ESRI), number rs37 edited by FitzGerald, John & Malaguzzi Valeri, Laura.
    5. Meade, Richard & Söderberg, Magnus, 2020. "Is welfare higher when utilities are owned by customers instead of investors? Evidence from electricity distribution in New Zealand," Energy Economics, Elsevier, vol. 86(C).
    6. Giuseppe Cappiello & Paola Garrone & Paolo Nardi, 2013. "Cooperation in the initial stages of infrastructure projects: a conceptual model and surv ey of Italian utility managers," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2013(1), pages 41-68.
    7. Bresnihan, Patrick, 2016. "The bio-financialization of Irish Water: New advances in the neoliberalization of vital services," Utilities Policy, Elsevier, vol. 40(C), pages 115-124.
    8. Phillip O’Neill, 2019. "The financialisation of urban infrastructure: A framework of analysis," Urban Studies, Urban Studies Journal Limited, vol. 56(7), pages 1304-1325, May.
    9. Tan, Jeff, 2012. "The Pitfalls of Water Privatization: Failure and Reform in Malaysia," World Development, Elsevier, vol. 40(12), pages 2552-2563.
    10. Richard Meade & Magnus Soderberg, 2017. "Welfare-Maximising Investors? – Utility Firm Performance with Heterogeneous Quality Preferences and Endogenous Ownership," Working Papers 2017-09, Auckland University of Technology, Department of Economics.
    11. Emily Poole & Carl Toohey & Peter Harris, 2014. "Public Infrastructure: A Framework for Decision-making," RBA Annual Conference Volume (Discontinued), in: Alexandra Heath & Matthew Read (ed.),Financial Flows and Infrastructure Financing, Reserve Bank of Australia.
    12. Laura Deruytter & Ben Derudder, 2019. "Keeping financialisation under the radar: Brussels Airport, Macquarie Bank and the Belgian politics of privatised infrastructure," Urban Studies, Urban Studies Journal Limited, vol. 56(7), pages 1347-1367, May.
    13. Zaghum Umar & Adam Zaremba & Ammar Ali Gull & Tatiana Sokolova, 2024. "Beyond traditional financial asset classes: The demand for infrastructure in a multi‐period asset allocation framework," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 2581-2592, July.
    14. Naima Lassoued & Imen Khanchel & Cyrine Khiari, 2024. "Pollution control bonds and overinvestment in utility companies: Does ownership matter?," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 51(2), pages 517-539, June.
    15. Wouter Thierie & Lieven Moor, 2016. "The characteristics of infrastructure as an investment class," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 30(3), pages 277-297, August.
    16. Heims, Eva M. & Lodge, Martin, 2018. "Customer engagement in UK water regulation: towards a collaborative regulatory state?," LSE Research Online Documents on Economics 87258, London School of Economics and Political Science, LSE Library.

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